Jul. 5, 2013

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Income tax central

Here’s the how much the average Ohioan would save each year on average in each tax bracket, once the 10 percent income-tax cut takes full effect in 2015. Most people making less than $10,950 pay no income tax. $10,950 to $16,450 … $13.67$16,450 to $22,000 … $30.43$22,000 to $43,800 … $79.36$43,800 to $87,600 … $208.72$87,600 to $109,600 … $382.63$109,600 to $219,050 … $671.75More than $219,050 … $2,793.67Source: Ohio Department of Taxation

Can Jane shop
across the river?

Kentucky has a flat 6 percent sales tax in all counties. With the quarter of a percentage point increase in Ohio’s sales tax, Butler County shoppers will pay 6.5 percent, and Hamilton, Clermont and Warren shoppers will pay 6.75 percent. While Jane would save on smaller items, big-ticket items requiring registration – say, a car or a boat – won’t be a bargain across the river. As a Southwest Ohio resident, Jane pays the Ohio sales tax, no matter where she buys her car or boat. “Ohio’s going to get their money, one way or the other,” said Rich Young, sales manager of Wieda’s Marine in Alexandria.

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An average Southwest Ohioan will save her family $47 a year after accounting for both an income-tax cut and sales-tax increase, but she has at least an extra $400 in property taxes in limbo under the new Ohio budget that took effect Monday.

Ohio’s majority Republicans and minority Democrats have sparred in recent weeks over the effects of the tax cuts and increases in the state’s two-year spending plan. Tax cuts will attract new business and spur the economy, Republicans have said. Isn’t it better, they argue, to return income taxes to the people?

Democrats have countered that the tax cuts are too small to make a difference for the average person. Middle- and low-income Ohioans will actually see their taxes increase from a sales-tax hike and upcoming changes in property taxes, they have argued.

What’s the truth?

The Enquirer used information from the state budget, local governments and the U.S. Census Bureau to paint a picture of an average Southwest Ohioan. Our hypothetical person – we’ll call her Average Jane – lives in Hamilton County, owns a home, is married and earns about $50,000.

At that income level, according to the Department of Taxation, Jane will save about $97 in taxes in 2015, when the budget’s 10 percent income tax cut will have taken full effect. But Jane will also spend about $50 more per year by paying a quarter of a percentage point more in sales tax, according to an earlier report by a Hamilton County committee on an identical rate increase.

So far, the Ohio budget puts Jane in the black, as the Republicans said it would. Her savings – $47 – are enough to buy dinner out for two. But what about her property taxes?

That’s more of an unknown. The budget doesn’t change anyone’s property taxes right now, but new and increased levies will cost Jane 12.5 percent more than they would have on previous ballots. The cause for the increase dates to 1971: To soften the blow of the then-new state income tax, Ohio agreed to pay 12.5 percent of every homeowner’s property tax bill. The state is keeping that practice for existing or renewed levies, but increased or new levies lose that coverage, starting with the November elections.

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Depending where Jane lives in Hamilton County, she pays between $1,362 in property taxes in Indian Hill and $3,248 in a small slice of Wyoming on each $100,000 in value on her home. For the median property tax burden for Hamilton County – $2,104 on a $100,000 home – the state now pays an additional 12.5 percent, or $263.

The average property value in Hamilton County is about $150,000, according to the U.S. Census Bureau. So Jane probably pays about $3,156 in annual property taxes, with the state paying an additional $395.

Again, Jane won’t have to take over that burden right away – or, more than likely, any time soon. Still, starting in November, any time her county, city, township or school district officials ask to increase a specific levy, she’ll take over the state’s 12.5 percent for that chunk of her property taxes. The state won’t pay the 12.5 percent on any new levies, either.

Increased levies are a reality for many townships and municipalities, whose administrators say they have no other option to make up for recent losses in key areas of state money. Democrats accuse Republicans of shifting the tax burden to local governments. State Senate President Keith Faber, R-Celina, has argued local governments shouldn’t have an easy time of raising taxes in the first place. Republicans such as Faber have said they are hoping municipalities learn to adjust to lower levels of state funding.

Deerfield Township residents will be among the first to consider levies without the 12.5 percent cushion from the state. Officials have placed a 4-mill police levy on the August ballot, which won’t be affected by the tax change. In November, though, the township will consider a 1-mill parks levy that would replace a property tax that expired in December.

Before the change, 1 mill would have cost $30.63 annually on a $100,000 home, Township Administrator Bill Becker said. With the change, a mill will cost about $34.50. So the new state budget will ultimately cost that resident an extra $3.87 a year.

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“Upfront, you think, ‘This is horrible,’ ” Becker said. “But when you break it down into dollars ... it’s not even a cup of coffee a year.”

The difference might be more noticeable on larger levies, such as those for schools, Becker said.

Now, what if Average Jane is preparing to retire? (Only 14 percent of Hamilton County residents have reached retirement age.)

Gone is Jane’s homestead exemption, which shaves $25,000 off the property-tax value of any senior citizen’s home. Starting Jan. 1, Ohioans who have yet to turn 65 will qualify for the exemption only if their annual income is less than $30,000 – including most pensions.

Jane’s median property-tax burden – $2,104 on a $100,000 home – would have dropped to $1,578 the day she turned 65. Now, she’s not likely to see any change in her situation.

The budget could make a small group of baby boomers very thankful for their birthdays. Take Lyn Richardson. The Anderson Township resident retired this year and turns 65 in November – just in time to receive the homestead exemption for the rest of his life.

For those who turn 65 in January, the homestead exemption is now gone – “bang,” Richardson said. “It’s not a lot, but every little bit helps.”

It’s enough for the native Kentuckian to think about moving back across the river, where his pension wouldn’t be taxed and where the sales tax is 6 percent throughout the state, lower than 6.75 percent in Hamilton County.

But back to Jane. Her situation changes if she owns a business. Then, she may qualify for the governor’s signature small-business tax cut, in which she would pay taxes on only half of her first $250,00 in income. That will save most small-business owners a couple hundred dollars; 90 percent of them will save no more than $2,000.

Republicans and Gov. John Kasich say the increases Jane will face are small compared with cuts in income taxes for all Ohioans, plus extra cuts for business owners. Taxing consumption and lowering the income tax create “incentives for those who take risks, those who create jobs and those who work,” Kasich said last week. And the property-tax changes create a more transparent system, Republicans said last week: This way, Ohioans will see what their taxes are paying for and will receive exemptions only if they truly need them, GOP lawmakers said.

In addition, the state’s association of major chambers of commerce recommended the property-tax changes as a way to enable income-tax cuts, which they view as encouragers of economic growth. What’s more, said Matt Davis, vice president for government affairs at the Cincinnati USA Regional Chamber, the homestead exemption was intended to help low-income seniors since its inception in 1971. That was expanded in 2007 to include all seniors. Proponents of the change want to see the exemption aimed only at those it was originally intended to help, he said. ■